Save Article

Target Warns Same-Store Sales
For December May Decline

MarketWatch

Updated Dec. 24, 2007 5:02 p.m. ET

SAN FRANCISCO --
Target Corp.
warned on Monday that December sales at stores open at least one year were running well below its previous forecast and may actually decline, jeopardizing earnings growth at the No. 2 U.S. retailer.

The warning, among the earliest assessments of holiday retail traffic, fuels fears that the U.S. consumer is starting to feel the pinch of a slower economy, higher prices and a much tighter credit market.

After the market closed in a holiday-shortened session, Target said that based on sales in the first three weeks of December and projected sales over the next two weeks, sales for the five weeks ending Jan. 5 would likely lie in a range of plus 1% to minus 1%.

In early November, the company forecast same-store sales for the month of December would slump into the low single digit range, and on a calendar-adjusted basis same-store sales would rise 3% to 5%.

"Our updated expectation indicates December sales will likely fall well short of the meaningful improvement (Chief Executive Officer Robert) Ulrich described at the end of November," the company said in a recorded message.

Target shares closed at $52.47 on Monday, up $1.79 ahead of the warning.

The company said while there was an increase in the number of shoppers visiting its stores in the third week of December, it was not enough to compensate for the slump that set in during the two weeks following Thanksgiving.

After a difficult November, the company cautioned earlier this month that if recent soft sales continued its trends, December performance would fall "well short" of this guidance.

An extra holiday shopping week because of a calendar shift that had lifted November demand at retailers such as Target were expected to be hurt their December sales.

The results from Target come as industry watchers are waiting for results from the crucial holiday shopping season.

Target, which attracts a higher-income customer than its larger rival
Wal-Mart Stores Inc.,
had been seen as more protected against the winds of the economy. But recent months have been tough for the cheap chic discounter, and rising gas prices, the shaky credit market, slipping home values and an uncertain jobs market made customers more cautious.

Earlier on Monday, Pershing Square, the hedge fund group run by activist investor William Ackman, said it boosted its stake in Target. Pershing said in a filing with the Securities and Exchange Commission that it has raised its stake to 9.97% from 9.6%.

The fund also said it has made further bets on the company via options and derivatives called total return swaps. Pershing Square said those positions don't confer voting power, but combined with the stock it holds give it economic exposure to the equivalent of 12.6% of Target's shares.

Ackman is an activist investor who previously took stakes in
Wendy's International Inc.,McDonald's Corp.
and
Ceridian Corp.
and pushed management to improve profits by cutting costs or selling divisions. He announced a big stake in Target in July, leading to speculation he would push the retailer to sell off its credit-card operations.

Last week, Target said that a review of its credit-card operations for possible sale is taking longer than expected, citing market conditions, and likely won't be finished until the first quarter of 2008.